Senior MPs are demanding an Office of Fair Trading investigation into greedy banks after Egg's decision to ban 160,000 customers from using their credit cards dramatically backfired.

Egg's move was initially interpreted as a prudent decision to curb overspending in the light of worsening economic conditions. But hundreds of customers have bombarded internet message boards complaining that they are not 'high risk' but settle their debts every month and incur no banking charges. They claim they are being axed because they do not make any money for Egg, recently taken over by US giant Citigroup.

The revelations created a storm of protest, with MPs demanding an investigation amid concerns that banks prefer debt-prone customers who are more likely to run up high bank charges.

John McFall, chairman of the powerful Treasury Select Committee, said: 'The motives of Egg need clear explanation if this a case of them ditching long-standing creditworthy customers because they make no money out of them. Perhaps this is an issue that requires an Office of Fair Trading investigation.'

Last October The Observer revealed how consumers with blameless credit ratings are being refused credit cards and consumer groups report that the practice is spreading.

Peter Thornton, a Liberal Democrat councillor in the Lake District, has been an Egg customer for over five years. He received a letter terminating his credit card on Friday. He said: 'This is more than an amazing PR blunder. There's a huge amount of people in my position. I'm on a lower interest rate because presumably they've assessed me as a good risk. Every business would benefit from losing 10 per cent of the least profitable customers, but the rest of us realise we can't do that because it would be a PR disaster. They're on the radio saying it's just bad risk people they're getting rid of. I feel slandered by that.'

Tim Farron, a Liberal Democrat MP, said: 'What this says about the irresponsible lending culture is horrific. An OFT inquiry would be sensible and overdue.'

Egg was bought last May, just before the credit crunch gripped the world, by Citigroup for £575m. A spokesman said that after buying the bank Citigroup reviewed its customer base to assess its credit worthiness. 'We are sorry and can understand that customers receiving letters are hurt and upset by this, but we stand by our decision. I'm confident the review undertaken was done in the best way possible and was effective in its findings. We are not getting rid of customers who don't make us money.' But he ruled out the prospect of axed customers with decent credit ratings getting new cards if they are found to be low risk.

A senior executive with a rival bank said: 'They're saying they're culling people because they've got poor credit history, but that's not what they're doing; that seems duplicitous.' But he added that Egg is recognised in the banking world as having a large number of customers with high debt.

A spokesman for the British Bankers' Association said: 'It's conceivable that with that number of people there are some who have been wrongly contacted. Anyone who believes this should contact Egg.'